Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:### Understanding Market Failures and Property Rights
The question presented is:
**The government addresses market failures when it enforces property rights.**
- ☐ True
- ☐ False
### Explanation:
In economic terms, a market failure occurs when the allocation of goods and services is not efficient, often leading to negative effects on society. Property rights are legal rights to use and derive benefits from a resource, and their enforcement is crucial for the efficient functioning of the market.
**Why Enforcing Property Rights Helps:**
1. **Encourages Investment:** When individuals know their property is protected, they are more likely to invest in and improve it.
2. **Reduces Uncertainty:** Clear property rights reduce disputes over ownership and usage, leading to more stable economic environments.
3. **Facilitates Trade:** Enforceable property rights make it easier to trade, as they provide assurance that transactions will be honored.
**Conclusion:**
The assertion that enforcing property rights helps address market failures is generally considered true. By ensuring that resources are used effectively and disputes are minimized, governments contribute to a more optimal allocation of resources, thus correcting market inefficiencies.
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